Homeowners are sitting on record levels of equity — and many are wondering how to use it wisely. Whether you’re looking to remodel your kitchen, consolidate high-interest debt, or fund a major expense, tapping into your home equity can be a smart move. But should you use a home equity loan, a va home loan, a HELOC, or go for a cash-out refinance?
Each option has its pros and cons. In this guide, we’ll break them down, explore current interest rates today, and help you decide which product makes the most financial sense for your situation.
What Is a Home Equity Loan?
A home equity loan is a fixed-rate second mortgage that allows you to borrow against the equity you’ve built in your home. You receive a lump sum upfront and repay it over time with fixed monthly payments.
Key Features & Best For:
| Fixed interest rates | One-time expenses like home renovations or medical bills |
| Lump-sum disbursement | Borrowers who want stable monthly payments |
| Predictable monthly payments | Those who qualify for competitive mortgage loan rates |
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving credit line — similar to a credit card — backed by your home. You borrow only what you need during a draw period and repay during the repayment phase.
Key Features & Best For:
| Variable interest rates | Ongoing or flexible expenses (e.g., tuition, emergency funds) |
| Borrow as needed (within the draw period) | Borrowers comfortable with payment fluctuations |
| Interest-only payments during initial years | Users who want to minimize interest by borrowing gradually |
What Is a Cash-Out Refinance?
A cash-out refinance replaces your existing mortgage with a new one — for more than you owe — and gives you the difference in cash. This is often used to lock in lower mortgage loan rates while accessing equity.
Key Features & Best For:
| Fixed or variable interest rates | Refinancing Mortgage Rates |
| New loan replaces your existing mortgage | Large financial needs (debt consolidation, investments) |
| Cash disbursed at closing | Homeowners with substantial equity and strong credit |
Comparing Interest Rates Today
Understanding interest rates today is crucial. Your rate determines your monthly payment and total borrowing cost.
Here’s how average rates usually compare:
Product/ IR Type/ Range
| Home Equity Loan | Fixed | 6.5% – 9% |
| HELOC | Variable | Prime + margin (7% – 10%) |
| Cash-Out Refinance | Fixed or Variable | 6.25% – 8% (based on credit) |
TIP: Use our comparison tool to check lender-specific offers and get quotes based on your credit profile.
Home Equity Loan vs. HELOC vs. Cash-Out Refinance: Side-by-Side Comparison
Feature/ Home Equity Loan/ HELOC/ Cash-Out Refinance
| Disbursement: | Lump sum | Draw as needed | Lump sum |
| Payment Structure: | Fixed | Variable | Fixed or variable |
| Loan Type: | Second mortgage | Revolving credit line | Replaces first mortgage |
| Best Use Case: | Fixed expenses | Flexible expenses | Refinance + cash access |
| Risk of Rate Changes: | Low | High | Moderate |
| Closing Costs: | Moderate | Low to none | Higher (like refinance) |
Real-World Scenarios
- Scenario 1: Debt Consolidation: You have $40,000 in credit card debt at 19% interest. A home equity loan lets you pay it off with a lower fixed rate and predictable payments — saving thousands in interest.
- Scenario 2: Funding a College Education: Your child will need tuition payments over the next four years. A HELOC gives you the flexibility to withdraw funds as needed instead of all at once, lowering your interest burden.
- Lowering Monthly Payments: You’re currently paying 7% on your mortgage. Today’s mortgage loan rates are closer to 6%. With a cash-out refinance, you could refinance into a lower rate and receive $50,000 cash to use as you wish.
Key Considerations Before You Choose
- Check Your Credit Score: Better credit = better rates.
- Understand Fees: Cash-out refinancing often comes with higher closing costs than HELOCs.
- Calculate LTV (Loan-to-Value Ratio): Most lenders won’t let you borrow more than 80–85% of your home’s appraised value.
- Compare Offers: Use trusted comparison sites like ours to review multiple lenders for the best deal.
- Think Long-Term: Consider how long you plan to stay in your home and how stable your income is.
Final Thoughts: Which Option Is Best for You?
Choosing between a home equity loan, HELOC, and cash-out refinance depends on your specific needs, risk tolerance, and how interest rates today compare to your current mortgage.
- Choose a home equity loan if you need a fixed amount with fixed payments.
- Go with a HELOC if you want flexibility and plan to borrow gradually.
- Opt for a cash-out refinance if you want to refinance your mortgage and tap into your equity at the same time.
